A shift in focus to premium drinks brands and profitability, along with new strategic direction from the c-suite, may have played a role in Diageo's exit from Distill Ventures.
A new CEO and a change of strategy to invest more in premium-brand drinks were part of the reason that global drinks company Diageo pulled out of Distill Ventures, an independent investment fund where the former was the sole limited partner, in March this year.
Distill Ventures had been the world’s first spirits industry accelerator when it was formed in 2013, and helped Diageo invest over $300m in more than 35 startups, particularly leaning into trends like non-alcoholic beverages. Distill Ventures was an early investor in non-alcoholic brands such as Seedlip and Ritual Zero Proof, which Diageo later went on to acquire.
But a surprise profits warning and a new chief executive in 2023 led Diageo to shift its focus to its premium drinks brands, divesting a number of what it considered to be non-core holdings. A market exploration unit like Distill Ventures appears to have been swept away as part of the streamlining.
“The focus shifted to putting money towards areas that were going to be profitable,” says Karen Xiang, former investment manager at Distill Ventures and current investment lead at Btomorrow Ventures (the corporate VC arm of British American Tobacco).
“This coincided with a lot of shifts at Diageo in terms of stakeholders moving positions. A new CEO of North America and CFO came into the picture, who had new visions for the broader business,” says Xiang.
First a slowdown, then a full break
Xiang left Distill Ventures at the beginning of this year, before the official announcement that Diageo was pulling out. Nonetheless, she had already seen a slowing down of activity at the unit.
“It was around H1 2024 that we had to slow down the velocity of investments and be more particular about them being aligned with Diageo’s larger investment strategy,” says Xiang.
“It wasn’t that we didn’t have the freedom to look for and explore interesting opportunities. It was just understood that the urgency of whether we’d be able to move forward with many of them was on an adjusted timeline.”
This slowdown continued, with Diageo’s last investment via the CVC recorded for February 2024, according to GCV Deal Data.
“Unfortunately for Distill, this ultimately resulted in the unravelling of the portfolio in March this year,” says Xiang.
The official announcement of Diageo’s exit from corporate venturing came after the drinks company’s new chief executive, Debra Crew, brought out a revised company strategy in February. This included disciplined capital allocation, portfolio management and actions to deleverage the balance sheet.
Status of Distill Ventures
There is a clear wind-down taking place at Distill Ventures. While it is understood that some corporate involvement will persist, Diageo will no longer fund investments the way it has in the past.
One of Distill Ventures’s portfolio companies, Westward Whiskey, filed for bankruptcy in early April this year, citing ‘significant liquidity challenges’.
GCV has not been able to confirm which companies and team members are being retained. Distill Ventures and Diageo have not responded to GCV requests for comment so far.
Distill Ventures is one of a series of corporate venture units that have been wound down or spun out in the past few months, as many corporations, faced with economic headwinds, retrench to focus on core operations.
Xiang says there are key learnings for other CVCs from the Diageo exit.
“Strategic alignment with your corporate is really important. Programmes within the accelerator or incubator model must evolve with the corporate’s priorities because you only live as long as the corporate wants you,” she says.
“Second, market context is key – especially within the alcohol industry. Third, clearly defined KPIs with the parent company and the startups. And finally, defining what success looks like for you and the parent company.”
